When to Consider a Mortgage Refinance

November 26, 2011

There are several reasons why people may consider a mortgage refinance, from getting a lower interest rate, changing from adjustable rate to fixed rate mortgage products, getting a lower monthly payment, or to cash out home equity. The benefits of refinancing a mortgage can be substantial, but it’s not always a good time to refinance. If you have been thinking about refinancing, consider the following before applying:

Your Current Credit Score

Mortgage interest rates are mostly determined by your credit score. If you had better credit when you applied for your current mortgage than you do now, you may not qualify for the best interest rates available when you try to refinance. On the other hand, if your credit score has been improving, there is a good chance refinancing your mortgage will result in a lower interest rate that will save you money over the course of your loan.

Is Your Financial Situation Strained?

It’s often a good financial strategy to refinance your mortgage if your financial situation is more strained now than it was when you originally got your mortgage. If you find yourself struggling to make ends meet now, and you can get a lower interest rate or lower monthly payment, you could relieve the stress on your financial situation through refinancing. If you extend your mortgage to a longer payment term, your payments will be lower automatically – but if you also qualify for a lower interest rate, you will get an even lower payment. This should help you while you adjust to a changing financial situation or find ways to increase your income.

Improved Financial Situation

Not every mortgage refinance is done in an effort to get a lower monthly payment. If your financial situation has improved, or you’ve gone from a one-income family to a two-income family, you might decide to refinance your mortgage and convert it to a shorter-term. This will generally cause your payment to increase, but you’ll save tens of thousands of dollars in interest over the course of the loan and you’ll pay your mortgage off sooner.

Debt Consolidation

If you have excessive debts in the form of loans and credit cards, you may decide using your home equity is a good way to pay off the high interest debts and regain control of your finances. Instead of having multiple monthly payments to send out, you’ll have just your home loan to keep up with. Chances are good you’ll save money on interest, plus it makes it much easier to keep track of what you owe and when to avoid late fees!

Posted in Real Estate